Massey has 26 years of investment experience, including broad experience in trading, competitive and negotiated underwriting
and distribution, as well as management and compliance supervision.
Yet, when the California Debt Advisory Commission (CDAC) decided to take a closer look at the competitive versus negotiated underwriting debate in late 1991, the commission and its staff were not fully aware of the pitched battle it would encounter between proponents of each method of sale.
This article describes the evolution of the commission's involvement in this study, the rocky road followed by CDAC in completing its work and ensuing events that have added to the controversy surrounding the debate over competitive versus negotiated underwriting.
As staff began to assemble a technical reference piece on competitive versus negotiated underwriting, the issue brief format was selected as a means of providing issuers with user-friendly information in a fairly short document (six to eight pages) Given the limitations on length, the most arduous task CDAC staff faced was to provide comprehensive coverage of a complex subject in a condensed form.
The document, whose contents are outlined in Exhibit 1, includes discussions on the strengths and weaknesses of competitive and negotiated underwriting, the factors to consider when making a method-of-sale decision and alternative approaches that certain issuers may want to consider.
If the commission harbored any illusions about there being general agreement on the issue of competitive versus negotiated underwriting, such notions were quickly dispelled when staff submitted its initial draft of the issue brief to CDAC's Technical Advisory Committee (TAC).
While CDAC's research efforts sought to raise questions about the preponderance of negotiated underwriting in California, and while some commission members have wanted to encourage greater use of competitive sales, CDAC has maintained the position that both methods of sale have their place in keeping public debt issuance costs to a minimum.
"A Comparison of the True Interest Costs of Competitive and Negotiated Underwritings in the Municipal Bond Market." Journal of Money, Credit, and Banking, vol.
"Comparative Costs of Competitive and Negotiated Underwritings in the State and Local Bond Market." Journal of Finance, vol.
Competitive bidding, which used to be the norm, has been eclipsed by negotiated underwritings
, which now account for approximately 75 percent of the aggregate dollar volume of long-term municipal bond offerings.